In a note to clients on Tuesday, Gary Balter at Credit Suisse said a merger between Staples and Office Depot, "makes significant financial and operational sense."

In morning trade on Tuesday, shares of both companies were up more than 6%.

In November 2013, Office Depot completed its merger with Office Max, and Balter writes that the FTC's wording in approving this deal implies that a Staples-Office Depot merger would be deemed acceptable.

Balter also argues that recent results from both companies highlight the need for further consolidation in the office supplies space, and Balter thinks Staples' cash flow makes this deal, "particularly attractive for private equity funds looking for a LBO candidate or other activist investors that can shake up the status quo and capitalize on the potential inherent in a merger with ODP."

In the second quarter, Staples reported revenue that fell 1.8% to $5.2 billion on net income that fell to $75 million from $103 million, while Office Depot reported an operating loss of $185 million in the quarter.

Balter notes that many argued for an Office Depot-Office Max merger for years as the combined market caps of those companies fell 90% from 2007 to 2012 until an activist investor took a stake in Office Depot and began pressing for a merger.

The combined market caps of those companies have double since then, and Balter believes operating profit of a combined Staples-Office Depot company could double by 2017.